Financial crisis Redux?
Xu Zhun

IT looked like a sudden nightmare when stockholders with hundreds of millions of Vietnamese dong found their pockets half empty overnight. The once prosperous bull market in Viet Nam plummeted to a troubled bear market. Viet Nam’s inflation rate hit 25.2 percent in May, the highest in a decade. Its currency has been depreciating greatly and its trade deficits with other countries continue to grow.
Some financial institutions have predicted that a new Asian financial crisis fueled by Viet Nam’s current financial turmoil could be on the horizon. Morgan Stanley, a New York-based global financial service firm, issued a report in May, which said Viet Nam was undergoing a “currency crisis” similar to the Asian financial crisis in 1997 that was sparked by the depreciation of the Thai baht. Its words created panic and doubt among investors and resulted in drastic fluctuations in the exchange rate of the dong against the greenback. They also prompted the withdrawal of large amounts of international investment from Viet Nam.
Despite such pessimistic assessments and appraisals, some Chinese experts are voicing different opinions. They believe that Viet Nam’s current financial difficulties may have only a limited spillover to the surrounding region and could be tided over if the Vietnamese Government took effective and correct measures.
Downside of economic growth
Since the implementation of doi moi, economic reforms initiated in 1986, Viet Nam has made noteworthy achievements. In the past 10 years in particular, the Vietnamese economy has climbed at a dazzling speed with its gross domestic product (GDP) growing more than 7.5 percent annually. It has been a success story that has been hailed as another Asian miracle second to China’s economic achievements.
Fu Weiliang, a professor who specializes in international economic cooperation at Beijing International Studies University, said although rising oil and agriculture prices worldwide play a role in the ongoing economic troubles in Viet Nam, the country’s domestic problems are mainly responsible for its current financial situation.
Viet Nam’s overheated economy has resulted from its inappropriate macroeconomic policies, Fu said. Strong growth in bank loans and foreign direct investment also has contributed to the country’s oversupply of money and mounting inflation pressure, he added.
Since Viet Nam’s accession to the World Trade Organization in January 2007, the Vietnamese Government has mapped out bold plans to attract foreign investment to speed up national development. It also has made ambitious claims about surpassing India and chasing China.
“The Vietnamese Government is pursuing fast economic growth and instant benefits, but fails to keep an eye on the problems that crop up during development, in addition to the lax control of its fiscal and monetary policies,” Fu said. “Furthermore, the government exercises loose supervision over bank lending.”
Economic development calls for much more than the increase of investment, Fu said. While foreign investment should be used to support pillar industries, the country must upgrade and optimize its trade structure to increase its value-added exports and maintain an even trade balance, he added.
But most foreign investment in Viet Nam has been directed to the stock market and the real estate industry, with a small portion of it going to technology-intensive industries, Fu said. For example, Viet Nam boasts abundant offshore oil reserves and is an exporter of crude oil. But because its only two oil refineries are still under construction, it has to import oil products, making it a victim of skyrocketing oil prices.
Sang Baichuan, a professor of international investment at the University of International Business and Economics in Beijing, said that Viet Nam’s current financial difficulties are attributable to the weakening confidence of the Vietnamese toward their own currency. Given the depreciation of the dong and the dramatic fall of Viet Nam’s stock market, few want to buy shares of the nation’s blue-chip companies, even at giveaway prices. This further fuels the country’s financial problems, he said. As it pursues fast economic growth by running huge trade and fiscal deficits, the Vietnamese Government can do little to save its economy from deteriorating when worrisome signs emerge, he said.
Loose policies on foreign indirect investment or foreign investment in financial markets are also a culprit, because foreign investors can easily pull out their money and deprive the country of the support it needs to finance the gap between its money reserves and its spending, Sang added.
Sang also said hot money engaged in speculation in Viet Nam and other Southeastern Asian countries may flee in response to the bad news in Viet Nam, generating greater economic fluctuation in the region.
Another problem adding fuel to the fire is that Viet Nam is short of human resources, especially professionals who study the market economy, Fu said. It should cultivate more talent and draw on experience from other countries’ development, so it could be run more smoothly, he said.
Not a financial crisis
People doubt whether Viet Nam’s financial woes could spread to other nations, because neighboring countries, such as Malaysia, India, Thailand and the Philippines, are subject to high inflation and currency depreciation, too.
“The agonizing situation can exert certain influence on other adjacent economies by altering economic expectations in these countries, especially those having similar development modes to Viet Nam,” Sang said.
Many other developing countries have followed Viet Nam’s approach to development, which is characterized by attracting foreign investment through favorable policies while boosting trade and especially increasing imports, Sang said. The model also uses government spending to promote industrial development.
The trade deficit and the deterioration of fiscal status caused by overstretching this strategy finally led to the current crisis, Sang said. Such a setback in Viet Nam certainly would have some psychological effects on other economies that embrace the same strategy, he added. But the crisis only would have limited spillover in the region, because the country’s problems are unique and less serious than some have made them out to be, he added.
Viet Nam’s economic development bears some similarities to that of Thailand in the 1990s with high inflation, an influx of foreign capital and an overheated economy. Fu declined to call the problem a “financial crisis” as did the Morgan Stanley report, arguing that it was a far cry from the onset of a new Asian financial crisis. He said although the Vietnamese Government exercised lax control over its capital market, the government still had a grip on it.
Echoing Fu’s view, Sang said the scale of hot money in Viet Nam was far smaller than the amount that flowed into Thailand in 1997. The current predicament is rooted in the country itself, as a result of its long-term economic policies, he said.
Furthermore, Viet Nam is still an agricultural country with a low level of industrialization and adequate food reserves. Inflation, and the rise of food prices in particular, would not likely have catastrophic effects, Sang said. Also, the overall impact of the Vietnamese financial problem would be controllable, because Asian countries have strengthened their ability to fend off financial crises as a whole, he said.
At a meeting in May, finance ministers from the 10 member countries of the Association of Southeast Asian Nations, China, Japan and South Korea agreed to create a pool of at least $80 billion in foreign exchange reserves to be tapped in case they needed to protect regional currencies. The move sent a message that Asia was making a concerted effort to secure its regional financial stability.
The Vietnamese Government has put forward a series of measures to ease its problems, such as tightening monetary policy, strengthening the supervision of infrastructure projects, adjusting the import mix to control inflation and reducing its trade deficits with other countries. On June 6, the country’s central bank announced that foreign currencies should not be sold to individuals-a further move to stabilize the foreign exchange market.
Fu said besides Viet Nam’s efforts, such international financial organizations as the International Monetary Fund also would lend a helping hand if the situation became grave, because under the scenarios of globalization and regional integration, no country would be immune from turmoil in other nations.
Viet Nam’s status quo is not an isolated problem. Given the rising prices of oil and agricultural products, countries around the world all suffer such predicaments, and they have a common responsibility to fight them, Fu said.
“Asian countries should be prudent in attracting foreign investment and act in tandem to upgrade their industrial structure,” Fu said. The Vietnamese phenomenon shows that countries should not act radically when opening their financial markets; otherwise, their national security would face severe challenges, he added.
Viet Nam’s problems sound an alarm not only for the country itself, but also for all developing countries, Sang said. Apart from paying surging costs for their development, developing countries are faced with the additional burdens of improving the livelihoods of low-income citizens and adjusting their income distribution systems, he said.
“All these have boiled down to one truth: an extensive pattern of economic growth that relies on resources is no longer sustainable in a world where costs keep soaring,” Sang said. He suggested that Viet Nam encourage technological innovation to offset its rising costs and narrowing profit margins.

—The Daily Mail-Beijing Review Articles Exchange Item

Plebiscite: The only way out
A J Malik

SEVERAL options have been offered to solve the Kashmir issue. These proposals involve a broad range of choices on a continuum from status quo to autonomy. India remains deaf to all these proposals. One proposal was offered by its own foreign secretary Jagat S. Mehta in the 1990s. Stripped of its verbal coating, the proposal was no more than a cosmetic enhancement of territorial partition. The main points of the proposal were: (a) restoration of the disputed state’s autonomy without `vivisection of the old boundaries’, (b) `immediate demilitarization of LOC to a depth of five to ten miles with agreed methods of verifying compliance’, (c) `conversion of the LOC into a soft border permitting free movement and facilitating economic exchanges’. (d) Keeping final settlement of the dispute `in a cold freeze’ for an agreed period. (e) Pending final settlement, cessation of Pakistan’s continuing insistence `on internationalization, and for implementation of a partial or state-wide plebiscite under peace-keeping auspices of the United Nations’.
Mehta’s proposal was flawed by conspicuous overtones against plebiscite, as enshrined in UN resolutions. Yet, India did not accept it. With an oyster-shell mind, she continued to insist that plebiscite was no longer required to be held. Her argument was that the puppet legislative assembly in occupied Kashmir had voted in favour of accession to India. India remained oblivious of the fact that the UN had already restrained her from staging fake legislative accession. The Security Council’s Resolution No 80 of March 14, 1950 reminded India `that the final disposition of the State of Jammu and Kashmir will be made in accordance with the will of the people expressed through impartial plebiscite’. The resolution pointed out that `the area [occupied Kashmir] from which such a Constituent Assembly would be elected is only a part of the whole territory of Jammu and Kashmir’.
It is a stark reality that unilateral accession could not be equivalent to UN-administered plebiscite. Innovative proposals, actuated by naiveté or malafides’, are just proposals. They do not bind the parties who have stakes in Kashmir. Even today, plebiscite is the best solution to determine the question of the state’s accession. There are fifteen United Nations resolutions which acknowledge Kashmiris’ right of self-determination. A plebiscite, administered with a non-partisan procedure, is a valid and the most practicable option. The framework for holding the plebiscite is contained in Sir Owen Dixon’s proposal submitted to the United Nations in 1950. Why so many proposals, other than the plebiscite, are afloat to solve the dispute? It is so because of the misbelief that the USA no longer considers it possible to hold a plebiscite to know Kashmiris’ will. The factual position is that even the USA is bound by the UN resolutions. In response to pro-India senator Stephen J. Solarz, US secretary for South Asian affairs, John Kelly had inadvertently said on March 6, 1990 that the US no longer was no longer in favour of a plebiscite in Kashmir. But, the state department’s point man for South Asia corrected Kelly’s mis-speech in 1993. Mallot clarified that Kelly made his comment after `continued grilling’ by the Solarz.
Madeleine Albright, former US Secretary of State, also believes that a plebiscite is the only way to ascertain the wishes of the Kashmiri people. She expressed this view in her concluding address to the Peace Conference held in New Delhi on December 13, 2003. In response to Omar Abdullah’s question, whether there was an alternative approach to the plebiscite, she replied that she knew of no other option except plebiscite or referendum. Shelving the plebiscite obligation amounts to capitulating to India’s point of view. Kashmir still exists as an unresolved question on UN desk. Despite its best efforts, India has not been able to get the India-Pakistan Kashmir question deleted from the Security Council’s agenda of unfinished business. Being a signatory to UN resolutions, India is bound to hold a plebiscite under United Commission for India and Pakistan (UNCIP) Resolution of August 13, 1948 (Para 75, Serial No 110, Part II) and UNCIP resolution of January 5, 1949 (Para 51, Serial No 1196). India should abide by the cardinal principle in inter-state relations, that is, pacta sunt servanda ‘treaties are to be observed’. Even if disinterested, India cannot disown her plebiscite obligation as Under UN charter, self-determination is Kashmiris’ legal right.
Self determination is jus cogen (peremptory norm) of international law, enshrined in Article 1:2 of UN Charter. Simla Accord also binds India to the plebiscite. Paragraph 1(i) of the Simla Agreement provides ‘The principles and purposes of the Charter of the United Nations shall govern the relations between the two countries’. India cannot unilaterally renounce the plebiscite obligation as termination of a treaty requires consent of all the parties under Article 59 of the Vienna Convention on the Law of Treaties.
The alternative solutions, peddled on Track II and international seminars, are figments of imagination. They are nullities in the eyes of law. Non-compliance of a treaty does not antiquate it. Aside from legal considerations, all religions call for abiding one’s promises.
We should not move back one step from our principled position, unless our die-hard enemy also does so. Bismarck has aptly remarked `he who seeks the friendship of his enemy with concessions will never be rich enough’. Charles Maurice Talleyrand (1754 - 1838) advises that there should be no over- zealousness or enthusiasm in conduct of foreign policy. Once a policy is chosen, it should be consistently implanted without any haste, or anxiety. Concessions obtained or granted under gun point (coercion) get exploded under gun-point. India is a ‘unique country’ nowadays hobnobbing with the USA as the world’s largest democracy. Does the unique democracy have no compunction for failure to fulfil its promise? No respect for morality? Kashmir is no real-state dispute. It involves millions of people. Indian cannot justify its occupation on property maxim `possession is nine points of ownership’.

Nuclear dreams and the Muslims
Salman Khurshid

SUDDENLY everyone is worried about Muslims in India. Perhaps it would be more accurate to say that they are worried for them. It is the Bharatiya Janata Party (BJP) that has been worried about Muslims all these years, including when the Congress-led United Progressive Alliance coalition government gave an indication of taking Sachar Report to its logical conclusion. Providing education, food and shelter to India’s largest minority was seen by them (and perhaps, not them alone) as communalising of the national budget. Reach out to the poor and Muslims with an aim to economically benefit them became a self-confident refrain. Who was to tell those people that Sachar Report is largely about Muslims not having received their legitimate share of the allocations for the poor and needy?
Now look at the Communists — the Left that is worried about Muslims because they are said to be upset over the civilian nuclear deal signed between India and the United States. It might have made sense if the Left parties had no other independent reason for being against the nuclear deal. Surely, this is not the first time that the issue of Muslim opinion has been raised in the country. The Left parties have stood by the Muslims on Babri Masjid issue, and opposed them on concerns of Salman Rushdie’s book Satanic Verses and also on Shah Bano case. They were somewhat ambiguous about Taslima Nasreen, but that can be explained too by the fact that it was too close to home.
The common thread in all that is the Left’s self-centred view that when it comes to Muslims they know best. The truth is that nobody really knows what all Muslims think about this nuclear deal with the US. We have consistently discouraged the idea of a sole spokesperson, and therefore it makes little sense now to seek the voice of select few to help us argue the case for the entire community. The fact is that no one knows about the rest of the country either. But there is good reason to believe that a majority of the population supports what is essentially a good idea. It is, of course, true that the issue has not been debated, as it should have been because of the self-imposed restraint of the Congress party in not wanting to annoy the Left parties.
However, now that the battle lines are clearly drawn the merits of the nuclear deal can be emphasised in the public without any self-consciousness. All along, one has been repeatedly told that right or wrong, the Left parties are a principled political lot. But how eagerly they have lined up at Mayawati’s (Uttar Pradesh Chief Minister and Bahujan Samaj Party leader) door is an eye opener. The latter may think that opposing the deal might fetch her a minority dividend unperturbed by her past advocacy of people like Gujarat chief minister Narendra Modi.

—Arab News